Jersey's super-rich pay as little as £3,000 income tax

Jersey’s high net worth individuals contribute approximately £13.5 million, or
two per cent of the island's annual tax revenue, and are encouraged not to
invest in Jersey, a hitherto restricted-access government report has
disclosed.

Some of Jersey's richest residents pay no more than £3,000 in income tax per annum Photo: Mia Caruana / Alamy

The independent report, commissioned by the government to identify ways of raising revenue from wealthy residents was made public on July 5 following pressure from politicians and the media.

It concludes that more should be done to attract rich individuals and reduce the island's budget deficit, caused by the global economic downturn.

Commissioned at a cost of £65,000, the report reviews the tax regime 1(1)(k), introduced in 1970 and applicable to those granted permission to move to the island without housing qualifications.

It reveals there are currently around 120 tax payers with 1(1)(k) status, paying 20 per cent tax on the first £1 million of non-Jersey source income, 10 per cent on the next £500,000 and one per cent on all other income. The minimum yearly income tax contribution for new applicants is £125,000.

It highlights the fact that Jersey is receiving fewer and fewer residency applications from rich individuals, while a number of existing 1(1)(k)s who arrived more than 20 years ago are paying as little as £3,000 in income tax per annum - the rate they agreed on arrival.

"The number of successful applications has fallen from between 60 and 70 each year in the early 1970s to less than five each year recently," the report said.

"Between 1990 and 2010, only 86 people were granted 1(1)(k) licenses.

"There are a number of 1(1)(k)s from the 1970s and early 80s who have particularly low minimum tax requirement, in some cases just £3,000-£4,000."

Almost all new 1(1)(k)s, the report concedes, "arrange their affairs" before becoming a Jersey resident, to ensure they pay no more than the minimum £125,000 tax liability.

"The regime currently encourages 1(1)(k)s to retain the bulk of their wealth in structures outside of Jersey... safely out of the reach of the Jersey tax authorities, often located in Guernsey.

"Investing in Jersey, where any profits will be subject to 20 per cent income tax is distinctly less attractive than investing abroad," it said.

Also identified in the report, prepared jointly by Withers LLP and Panopticon Policy, is the divide between those working in Jersey's financial sector and residents outside of it.

Discontent among the working and middle classes has been growing in Jersey since the government's decision to raise the Goods and Services Tax (GST) from three to five per cent last month.

As a result, the cost of essential items such as food and petrol has increased, causing many to feel that they are subsidising a tax regime that favours the wealthy.

It said: "Outside of the financial services sector there seems to be a general mistrust of the regime.

"There is a common belief that 1(1)(k)s are paying little or no tax. There is a perception that the regime is shrouded in secrecy and there also seems to be a belief that 1(1)(k)s are a drain on Jersey's resources (such as the health service), that they have an adverse impact on the availability and affordability of property and that they do not contribute much to the island."

In a bid to encourage more high net worth individuals and to increase revenue, the report recommends removing the distinction between income arising in Jersey and outside the island, and suggests setting a worldwide income tax rate of 20 per cent on the first £625,000 of income and one per cent thereafter.

It also encourages the provision of a concierge service for prospective and new 1(1)(k)s to help them access golf clubs and marinas, where they will be "influenced by the positive experiences of the existing 1(1)(k)s they meet in these social settings".